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Appeared on: Wednesday, September 11, 2013
Thoughts On Apple's Strategy

Apple has updated its its iPhone line with changes necessary for the company's success in the mobile handset market in 2013, but they may still not sufficient for the longer term.

Apple unveiled two new iPhone models, the new flagship iPhone 5s and the lower-priced iPhone 5c, along with the improved iOS 7 mobile operating system.
"At an unsubsidized cost of $549, the iPhone 5c remains at the same price point as the existing mid-range model in Apple's smartphone line, the iPhone 4S," said Francis Sideco, director for consumer electronics and communications technologies at IHS. "In light of this pricing, the 5c appears to be a midrange product that cannot significantly expand the available market for the iPhone line to lower-income buyers. As a result, the arrival of the 5c will not spur a major increase in iPhone sales in the second half of 2013 compared to previous expectations."

"If Apple had hit a $350 to $400 unsubsidized price range for the iPhone 5c, as some had speculated, the company might have had a chance to expand its smartphone shipments beyond what we originally expected in the second half. Even at a subsidized price of $99 with a two-year contract, the 5c will not spur sales because it does not materially expand Apple?s addressable market past the level we had already taken into account."

While Apple did not address the low end of the market with its announcement, the 5c represents a major departure from its previous product strategy, which could improve the company?s competitiveness.

"With the new models, Apple is taking steps to bolster its share of the global smartphone market in the face of rising competition," said Ian Fogg, director for mobile and telecoms at IHS. "Alongside innovation with the iPhone design and features with iOS7, Apple is now also innovating at lower price points, too. The iPhone 5c is the first time Apple has built a fresh handset design for the midrange smartphone market segment. By using a visibly different design for the iPhone 5c, rather than repurposing an old flagship, Apple is minimizing the risk of cannibalization of its more expensive iPhone models."

These new models and the improvements in the iOS7 software are critical for Apple because the iPhone is facing increased competition with Samsung, Sony, HTC and LG, which are all releasing strong smartphone flagships in 2013. Notably, Apple's portfolio lacks large-screen smartphone models with 5-inch 1080p displays.

The iPhone 5c's improved 4G LTE band support will also make it more attractive to European operators than the older iPhone 5, which supported only one European LTE band: 1800Mhz.

"The updates that Apple makes to its iPhone line are necessary for Apple's success in the mobile handset market in 2013, but they are not sufficient for the longer term," Fogg warned. "Apple will need to innovate significantly in 2014 with both improved software and new iPhone hardware to counter the growing threat from Android smartphones and ensure that Apple's mobile success continues."

iPhone 5c Too Pricey For Chinese Consumers

Reception for Apple 's new iPhone 5c in China was lukewarm after the company
announced the price of the device in the world's larget market, which is
significantly higher than the United States retail price.

The plastic-backed iPhone 5C will sell for 4,488 yuan ($730) China, almost
$200 more than the United States retail price of $549 and only 800 yuan
($130) less than its top-of-the-line sibling, the 5S.

Apple unveiled the two new handsets at an event at the company's
headquarters in Cupertino, California, on Tuesday. The company also held a
launch event in Beijing hours later on Wednesday.

In addition, a speculated deal with China Mobile, the country's biggest carrier, was
never annnounced. Apple's iPhones are currently available in China on
long-term contracts with smaller wireless companies.

Apple's share of the China smartphone market slipped to 5 percent in the
second quarter, according to research firm Canalys, trailing Samsung, Lenovo
Group Ltd, ZTE Corp, Huawei Technologies and Xiaomi Technology.